In California, Amyris has started industrial scale production of what it believes is “the world’s best tasting and lowest cost zero calorie natural sweetener” and therein lies a tale. Of Amyris and, by extension, almost everyone else who will — soon or later — follow in its wake.

Originally, it was going to be fuels, and then there was a period of bulk chemicals around its farnesene production chops — they called it biofene.

Picking right is a barrier to entry

As Amyris CEO John Melo tells it, “when the business developed we went to three molecules and with all three we had a problem. Eventually, we realized that a barrier to entry is picking. We had to recognize that it would be better if we let the customer pick the targets, and they pay to develop, based on their assessment, and using their insight to pick.”

Take for instance the Vitamin A partnerships with DSM.

Amyris had been steaming along with Vitamin E, reporting“that it expects revenue related to its Vitamin E partnership with Nenter to more than double based on the current success of the program. During 2016, the company shipped approximately $9 million of farnesene to Nenter for conversion to Vitamin E and expects 2017 shipments to Nenter to be about $20 million.” Now, along came an exclusive licensing agreement with DSM for Vitamin A within the nutraceuticals market. The focus? A fast-track to market for the production and commercialization of low-cost supply of Vitamin A.

But is it all just contract R&D of the old pharma model?

As Sam Nejame observed recently in The Digest, “it all comes back to the business model, which for most Synthetic Biology companies is essentially contract research.That means, projects fund a few FTEs, at cost plus, and there are milestone (and sometimes license) payments, with a backend royalty on a successful commercial product.This, my friends, is a pharma model, yet in most cases Synthetic Biology companies are not making blockbuster pharmaceutical drugs.”

Well, not really.

“It’s not the pharma model,” Melo said, ”or a change in model or a strategic choice to sell and move to royalty only for Vitamin A. The rest of business is still the value share model.We only do it if we get to scaled manufacture and supply long term, and we share in the value, which is a royalty equivalent in some ways, but we manufacture, we supply, they select. So, now, we have we have 7 scaled-up molecules, all growing at 30 – 40 percent. The Vitamin A opportunity was a bit of an outlier for us. There was this extremely volatile market price, production is very concentrated and we have no impact on that. So, the opportunity for us was to use our technology position to extract as much value from the partnership as we could.

But let’s look at one other aspect of the vitamin business — an unusual role for industrial biotechnology, which is to power low-cost manufacturing.

You see, it’s unusual for biotech be associated with “low cost” anything. In fuels, it’s been about addressing externalities like emissions, and the product costs the same or more as the incumbent. In chemicals, there were hopes of reducing manufacturing costs, but the crash in oil prices and the long-term cheap natgas prices have limited industrial biotech mostly to markets where there is a functional advantage or where consumer preference opts for the more sustainable option.

So, this is different, and one of the two biggest reasons that Amyris is tilting towards China.

“We’re focused Zero on North America,” says Melo, commenting on the pharma prospects. “We’ve played around pharma in the US and EU, and it is interesting work but they are just not focused on cost reduction, and that’s where our value proposition is. Sure, there’s purity, but we really deliver on cost reduction where we can simplify a multi-step process that a company is going through to make a molecule using petroleum. That’s where the value is for us — simplifying — and thewestern companies have a big disconnect with synthetic biology.

The China Opp

“But in China, there’s a focus on molecules coming off patent and the chemistry can be extremely complex and they’re producing the same drug, same molecule, but the have figured out that using synthetic biology is the most efficient way. And we look at the chemistry and, yes, there are a lot of molecules where the process can be focused. So, it’s moving very fast for us there.”

Take Yifan, for one. World’s biggest supplier of insulin. For them, the issue is the cost base. If you thought that Amyris might ultimately set up a separate company with a couple of new investors and parlay its scars and learning into an accelerated growth path in China, you’d probably not be far off. Faster growth and lower investment could well be expected there, because in many ways the Amyris Mousetrap already exists.

Walt Disney’s first 20 years weren’t pretty either, it didn’t get great until 1954 and Disneyland. And, again to quote Sam Nejame, “If you were to look at the performance of bio-pharma equities circa 1990, arguably a similar relative era to today’s Industrial Biotechnology development, you would see something interesting.In fact, for the first 30 years of bio-pharma, that industry burned more money than it made.And if you remove the two superstars (Genentech and Amgen) the numbers look much much worse.

“Given this history why should we expect Industrial Biotechnology to look any different?I’d take that a step further and say, given the success of biotechnology since 2007 and the important drugs that continue to emerge from that research and investment, it would be hard to argue it wasn’t worth the pain and suffering.In reality the results have been amazing, it just took longer than expected.And that’s why people continue to invest.”

Now, back to China, because there’s more to it than cost. We probably can thank Donald Trump for that. The Chinese companies are scrambling, and politics and sustainability are key drivers, and there’s a huge movement towards clean technology.

We’re not entirely sure how many companies “get it”, when it comes to China. It’s not the place, really, to go in and pitch the same things the same ways, long-term opportunity, like companies do in the EU.

There are a lot of companies pitching, and widely, and they have great technology and great development opportunities. The ability to capitalize on those opportunities with a scaled supply agreement to take full advantage of what’s been built — where that goes, we’ll have to find out. Nejame thinks its hard to make contract R&D plus royalty work without the blockbusters that pharma provides.

About those Millennials

But we are drifting away from Amyris, and China, and we shouldn’t leave China just yet until we’ve put a circle around that word, sustainability, and how new consumers are entering the market with new ideas on product.

Not just the Chinese. Think, Millennials. That generation is between 18 and 34 right now — peak value to many consumer-facing companies.

Even the Digest demographics have changed radically. Back in 2007 when we were founded, roughly 13 percent of our readers were Millennials, 47 percent Boomers (and above) and 40 percent GenXers. Today, those percentages are 51 percent, 20 percent and 29 percent. Millennials are taking over the market when it comes to industrial biotechnology.

And something else about that group. Among Boomers and older, 85 percent of our readers are guys. In the 18-24 group. we’re 50/50 on gender. Times are changing. So are tastes.

Biossance and Millennials

Melo tells us, “with Biossance, 80 percent of revenue is 18-34 year old Millennial — and they care a lot about ingredients and they are passionate about clean. People my age, they discuss and debate and then check it out, but at that age, they they google and get data. They try to get fact-based information. And all that’s good for us, because if youbelieve in high quality ingredients, the only way is fermentation at scale.”

“We started with a single ingredient,” Melo recalls. “iAnd we saw an opportunity to educate and go to the consumer with the offer, and that we thought we could generate the interest and then influencers would help get that consumer pull-through, and now it is the the fastest growing skin care brand in the US. We’ll do more volume in 2nd half of this than last year. We’re going to do $20M this year, and we’re on track for $60M next year.”

About Sweeteners

What about sweeteners?

The pursuit of the zero-calorie sweetener was supposed to be over years ago. It was sugar, or Equal or NutraSweet or Splenda. The white package or the blue one or the pink or the yellow. But then, consumers rebelled — and there was an interest in more natural solutions.

And the stevia plant is amazing. It naturally produces Reb D and Reb M, which are much more concentrated than sugar have no calories. The problem being Reb A, which is also present in the plant and has an unpleasant aftertaste. And it makes all of them in low concentrations. So, a technology that simply crushes stevia and extracts molecules struggles on cost and on performance.

Alternatives? So, you try to convert Reb A into more Reb M (Sweegen), or use industrial biotechnology to make Reb M, Reb D or any combination thereof via fermentation of plant sugars. That’s Evolva and Amyris, backed by Cargill and DSM, respectively.

The battle is heating up, and the stakes are huge. The players in low-calorie sweeteners are a who’s who. DuPont, Tate & Lyle, ADM, Cargill, Celanese, NutraSweet, and Ingredion. Technavio projected the market to grow to $2.84B by 2021, and a growth clip of 4 percent.

Cargill is expected to start at-scale production shortly in its long-standing partnership with Evolva, then there’s Sweegen (which has a technology to convert naturally-extracted Stevia into a better-tasting alternative).

And we would be remiss to overlook Codexis and Tate & Lyle’s partnership. In 2016, about three years after their first partnership (CodeEvolver protein engineering drove a70-fold increase in enzyme activity/stability and 90% reduction in catalyst cost contribution), a proactive investment by Codexis provided proof of concept on enzymatic synthesis of natural sweetener, Reb M. In 2017, Codexis and T&L struck a deal to enable a new food ingredient (zero-calorie Tasteva Stevia sweetener), and T&L is now commercializing. Brava.

Now, DSM and Amyris are now entering the fray at commercial-scale.

“I wish I could tell you how it plays out,” Melo told the Digest. “We ended up with the best taste profile, and the lowest cost to make. And we’re told that consumers say that the fact it’s made from natural sugarcane is a story they love. We didn’t choose sugarcane exactly for that reason, but the sum of the choices we had gave us an amazing product — and there’s beverages, confectionaries, baking. Millennials want great products, and the opportunities are big.”

“Now, we can provide a better option for people, including those who may be managing diabetes or other personal, health concerns. Finally, there’s a healthy and great tasting sweetener for everything from coffee, to barbecue sauce to the chocolates we cherish. Working with our partners, we will now be able to bring to consumers all the sweetness they desire but with none of the health dangers or bad aftertaste and, of course, with zero calories.”

But maybe not India for now

Sweeteners are huge in India, and the country is a rocket So, why do we hear less of Amyris out that way?

“We’ve not invested as much time there,” Melo told us. “I was very active in that market in my BP days, so we know it. It’s the world’s biggest democracy, which can make it great for union people and horrible for us. The federal government there can make a lot of noise, but the states often do nothing or something different. So, it’s a very different kind of opportunity, the conversations are different, and I don’t see India working the way as China does for us.”

In China, there’s the market, and there’s the manufacturing. And as Melo notes, “it is where we can simplify, that’s where we’re going.”

Reduced costs, reduced calories, reduced carbon, and a smaller world. Amyris has build the mousetrap now — we’ll see as the months and years unfold where exactly it will take them. It’s been a bumpy flight, but it looks as though there are enough targets at enough companies to keep Amyris scaling up its R&D and also its manufacturing. The Stock price has been on a rise these past 18 months, too — welcome news.

Will Amyris be able to fund all its growth without dilutive share issues, now? We’ll wait to see. But for sure, the partners and the products would convince anyone that the next few years promise to be a real journey into opportunity. Think China, nutrition, beauty for now. As carbon policy comes together and petroleum prices rise — more doors will open.